Essential Question:
How do economic
systems answer the
questions of what,
how, and for whom to
produce?
Standards:
 SS7E1a, SS7E5a, SS7E8a
Compare how traditional, command, and
market economies answer the economic
questions of (1) what to produce, (2) how
to produce, and (3) for whom to produce
 SS7E1b, SS7E5b, SS7E8b
Explain how most countries have a
mixed economy located on a continuum
between pure market and pure
command.
Before we can discuss
economic systems, we
need to review the basic
concepts of Economics.
What is
Economics?
Activator: What is
Economics?
Write your own definition of
economics.
Things to think about while developing
your definition:
1. Products
2. Money
3. Business
Economics – the choices we
make about how to use limited
resources to produce goods &
services that meet our
unlimited wants & needs.
Hi! My name is
Stan and today I
am going to
teach you about
economics.
Yesterday, when I was
walking through town, I
decided to go to “Bubba’s
Ice Cream”. My friend
Diana works there. Diana
provides a service to me
because she serves me
ice cream. A service is
any kind of work
performed for others.
The ice cream is a good.
A good is something
you can feel, or any kind
of merchandise.
Bubba’s Ice Cream
Look at the
pictures on
the right.
Which of
these pictures
show goods
and which
ones show
services?
1)
2)
3)
4)
I’m sorry
Stan!
I asked Diana
for a double
scoop of my
favorite kind of
ice cream: mint
chocolate chip.
“I am sorry Stan,
we are all out of
that flavor”, she
said.
Disappointed, I
settled for
vanilla.
What is supply and demand?
100
80
Gallons60
40
20
0
vanilla
choc.
straw.
Flavors
mint
choc.
The supply of mint
chocolate chip ice
cream at “Bubba’s”
was gone because it
was in high demand
(wanted) by many
customers. Look at
the chart on the left to
see what flavors are in
supply at “Bubba’s
Ice Cream”.
What is supply and
demand?
Supply is the amount
of something
available for use.
What is supply and
demand?
Demand is how
much of a product or
service is desired by
buyers.
Diana asked me if I would
like my vanilla ice cream in
a cup or a cone. I asked
for a cone. Diana said I
was lucky because there
was only one more cone
available. The little boy
behind me in line wailed, “I
wanted my ice cream in a
cone!” I told Diana that he
could have the last cone,
and that I would have mine
in a dish with chocolate
syrup.
There was a scarcity
of cones at Bubba’s.
Scarcity means that
there are limited
supply of something,
and therefore, people
must make choices.
Look at the pictures on
the right. Which
pictures show a
scarcity?
1)
2)
3)
After I finished my ice cream, I said goodbye to
Diana and left. In the street I heard two children
singing a song to the tune of “You Are My
Sunshine”. It went like this:
“We are consumers!
We are consumers!
We are so happy
when we can shop!
We are consuming
goods and services,
But our wants just
will not stop!”
I found myself singing along to the tune. When we were
finished singing I asked, “Where are you two going?”
The boy, whose name
was Andy, answered:
“We’ve saved up all
our money and today
we are going to the
toy store! My sister
Sara wants to buy
either a rabbit or a
bike and I want to buy
either a basketball net
or a skateboard”.
Toy Store
What are producers and consumers?


The two children in this example are
consumers. A consumer is
anyone who buys a good
or a service.
The toy store owner in this
example is a producer.
A producer is anyone who
makes or grows a good or
performs a service.
Consumer
What is opportunity cost?

Andy had $65.00
to spend at the
toy store. The
basketball net
cost $50.00, so
he had to buy that
instead of the
skateboard, which
cost $75.00.

Sara had enough
money for either
the rabbit or the
bike. She decided
to buy the bike
because then she
could ride bikes
with her friends
after school.
Opportunity
Costs
Purchases
Opportunity cost is
the process of
choosing one good or
service over another.
The item that you
don’t pick is the
opportunity cost.
The rabbit is Sara’s
opportunity cost
and the skateboard is
Andy’s opportunity
cost.
What is a profit?
What Andy didn’t realize when he
bought his basketball net was that
the toy store owner made a large
profit off of the sale. The toy store
owner spent $30.00 to make the
basketball net. Andy bought it for
$50.00. The toy store owner made
a profit of $20.00.
What is a profit?
Profit is the positive gain
from an investment or
business after subtracting
expenses (opposite of loss)
What is a loss?
The toy store owner lost money
when Sara purchased the bike.
The owner made the bike for
$80.00, but sold it to Sara for
only $65.00. The toy store
owner lost $15.00.
What is a loss?
A loss is when the amount
of money a person or
company spends is more
than they receive or take
in. (opposite of profit)
After the children left the toy store I decided to
stay and have a look around. In the front of the
store there was a magnificent toy car.
“Wow”, I exclaimed,
“What a neat car! Did
you make it yourself?”
The toy store owner
explained that it was
designed by a car
company, put together by
Mattel, a toy company,
and painted by himself.
“Painting is my specialty”,
he said.
What is specialization?
The toy store owner counted on others
to do the necessary work to construct
the toys he sold, but then he would
paint the toys himself.
Specialization is when an individual
or a company specializes in doing
one part of a task, and relies on others
to complete the other parts.
What is interdependence?
Interdependence is when
people depend on one another.
Specialization results in
interdependence.
Johnson Elementary School
I said goodbye to the
toy store owner and
continued on my walk
through town. I
passed the elementary
school as I rounded
the corner. Public
schools are services
provided by the
government and paid
for by taxes.
What are taxes?



Taxes are the money that the government
collects from individuals and businesses to
pay for public goods and services.
Andy and Sara both paid a 4.5% sales tax
when they bought their toys. Andy paid an
extra $2.25 in tax, for a total of $52.25.
Sara spent $2.93 in sales tax for a total of
$67.93.
People also pay an income tax. An income
tax is a percentage of money taken out of
your income.
I passed the school and saw my friend Cole
walking down the street. “How are you
today?”, I asked Cole.
“I am fantastic! I just
thought of a new idea:
a bowling ball that
expands as you throw
it so that it is
guaranteed to knock
down every pin! I am
going to be famous!”
What is an entrepreneur?
Cole is an entrepreneur.
An entrepreneur is a person who
comes up with a product or service, or
a better way to produce one.
He found the resources, the money,
and the time to produce a new
product.
Goodbye!
This completes my
lesson on economics!
I hope you enjoyed
the tour. Economics
is an important part of
our lives. Think of all
of the ways you use
economics everyday!
Economic Terms Review
Matching Strips
What is Economics?
Every society has
productive resources:
Land/ Natural
Resources
Human
Capital/Labor
Capital/Tools
Entrepreneurship
What is Economics?
Productive Resources are used
to produce:
Goods
Services
What is Economics?
However, because of SCARCITY,
choices must be made to answer the
Three Basic Questions of Economics.
1. What goods and services will be
produced?
2. How will the goods and services be
produced?
3. Who will consume the goods and
services?
35
Economic
Systems
Economic Systems
A Country must decide how to
distribute its resources to meet
the needs of its people.
How a country makes these
decisions determines its type of
economic system.
An Economic System is
the way a society
organizes the production,
distribution, and
consumption of goods
and services.
Vocabulary
Break
In small groups, sort the pictures
provided as examples of production,
distribution, or consumption
Economic Systems
There are 3 basic types of
economic systems that have to
answer three basic questions:
(1) What to produce?
(2) How to produce?
(3) For Whom to produce?
Economic Systems
 WHAT TO PRODUCE? (What kinds of goods and
services should be produced?)
 HOW TO PRODUCE? (What productive resources
are used to produce goods and services?)
 FOR WHOM TO PRODUCE? (Who gets to have the
goods and services?
 The way a society answers these questions
determines its economic system.
Types of Economic
Systems:
1. Traditional Economy
2. Command Economy
3. Market Economy
Follow teacher instructions to
create your Economic Systems
Foldable to use for note-taking
Traditional Economy
 An economic system in which economic
decisions are based on customs and
beliefs
 People will make what they always made
& will do the same work their parents
did
 Exchange of goods is done through
Bartering: trading without using money
Traditional Economy
 Who decides what to produce?
 People follow their customs and make only
what is needed to take care of oneself
 Who decides how to produce goods &
services?
 People grow & make things the same way
that their ancestors did
 For Whom are the goods & services
produced for?
 Self and trading purposes (people
in the village who need them)
Traditional Economy
 Examples:
 Villages in Africa and South America; the
Inuit tribes in Canada; the caste system in
parts of rural India
 Strengths: Predictable job and lifestyle
 Weaknesses: Lack resources and
limited production
Distributed
Summarizing
Draw an illustration in
your foldable that
represents a
Traditional Economy.
Command Economy
 Government makes all economic
decisions & owns most of the
property
 Sometimes called communism
 Examples: Cuba, former Soviet Union,
North Korea
 This system has not been very
successful & more and more
countries are abandoning it
Command Economy
 Who decides what to produce?
 Government makes all economic decisions
 Who decides how to produce goods and
services?
 Government decides how to make
goods/services
 For Whom are the goods and
services produced for?
 Whoever the government decides to give
them to
Command Economy
 Strengths: people do not have to
worry about employment,
housing, education, and
healthcare
 Weaknesses: consumers own
nothing, no choices/freedom,
limited innovation by individuals
Distributed
Summarizing
Draw an illustration
in your foldable that
represents a
Command Economy.
Market Economy
 In a market economy, buyers and sellers
answer the three economic questions
 All resources are privately owned
 Who decides what to produce?
 Whatever the market demands that will
produce a profit
 Who decides how to produce goods and
services?
 Private producers (businesses)
 For Whom are the goods and services
produced for?
 Consumers who demand the product and are
willing to pay
Market Economy
 Strengths: People can start their
own businesses, more choice
 Weaknesses: The desire for
money may lead to poor quality of
goods and services, business
owners have to risk losing money
Distributed
Summarizing:
Draw an illustration
in your foldable that
represents a Market
Economy.
Distributed
Summarizing:
Economic
System Quotes
Mixed Economy
 Market + Command = Mixed
 There are no pure command or market
economies. To some degree, all modern
economies show characteristics of both
systems and are often referred to as mixed
economies.
 Most economies are closer to one type of
economic system than another
 For example, businesses own resources and
determine what and how to produce, but the
Government regulates certain industries
Mixed Economy
 Most democratic countries fall in this
category (there are no truly pure
Market or Command economies).
 Examples: U.S., Brazil, Mexico,
Canada, UK, etc.
Continuum of Economies
Mixed
Pure
Command
Pure
Market
Summarizing
Strategy
Economic Systems
Continuum Activity